§ 1278. Definitions and special rules
(a)
In general
For purposes of this part—
(1)
Market discount bond
(A)
In general
Except as provided in subparagraph (B), the term “market discount bond” means any bond having market discount.
(B)
Exceptions
The term “market discount bond” shall not include—
(D)
Treatment of bonds acquired at original issue
(i)
In general
Except as otherwise provided in this subparagraph or in regulations, the term “market discount bond” shall not include any bond acquired by the taxpayer at its original issue.
(ii)
Treatment of bonds acquired for less than issue price
Clause (i) shall not apply to any bond if—
(iii)
Bonds acquired in certain reorganizations
Clause (i) shall not apply to any bond issued pursuant to a plan of reorganization (within the meaning of section
368
(a)(1)) in exchange for another bond having market discount. Solely for purposes of section
1276, the preceding sentence shall not apply if such other bond was issued on or before July 18, 1984 (the date of the enactment of section
1276) and if the bond issued pursuant to such plan of reorganization has the same term and the same interest rate as such other bond had.
(iv)
Treatment of certain transferred basis property
For purposes of clause (i), if the adjusted basis of any bond in the hands of the taxpayer is determined by reference to the adjusted basis of such bond in the hands of a person who acquired such bond at its original issue, such bond shall be treated as acquired by the taxpayer at its original issue.
(2)
Market discount
(3)
Bond
The term “bond” means any bond, debenture, note, certificate, or other evidence of indebtedness.
(4)
Revised issue price
The term “revised issue price” means the sum of—
(B)
the aggregate amount of the original issue discount includible in the gross income of all holders for periods before the acquisition of the bond by the taxpayer (determined without regard to section
1272
(a)(7) or (b)(4)) or, in the case of a tax-exempt obligation, the aggregate amount of the original issue discount which accrued in the manner provided by section
1272
(a) (determined without regard to paragraph (7) thereof) during periods before the acquisition of the bond by the taxpayer.
(b)
Election to include market discount currently
(1)
In general
If the taxpayer makes an election under this subsection—
(B)
market discount on any market discount bond shall be included in the gross income of the taxpayer for the taxable years to which it is attributable (as determined under the rules of subsection (b) of section
1276).
(2)
Scope of election
An election under this subsection shall apply to all market discount bonds acquired by the taxpayer on or after the 1st day of the 1st taxable year to which such election applies.
(c)
Regulations
The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subpart, including regulations providing proper adjustments in the case of a bond the principal of which may be paid in 2 or more payments.
[1] So in original.